(Source: Business Wire)
American Equity Investment Life Holding Company (NYSE: AEL), a leading
underwriter of fixed rate and index annuities, reported today that it
achieved a long-standing goal of writing in excess of $3 billion in new
annuity premium in a single year. Annuity sales for 2009 topped $3
billion in October, setting an all time sales record since AEL was
founded by Executive Chairman David J. Noble in 1995. Commented Noble:
"With our relentless focus on quality products and excellent service we
have stepped up sales to meet increased consumer demand for principal
protected products such as fixed index annuities. The steep market
declines and great volatility of the last twelve months have had a deep
impact on consumer attitudes about market risk and retirement income
security. We intend to remain at the forefront of the market for
products which offer insurance protection from risk of loss and
guaranteed retirement income."
American Equity also reported record 2009 third quarter operating income1
of $28.2 million, or $0.47 per diluted common share, a 26% increase over
adjusted2 2008 third quarter operating income of $22.3
million, or $0.40 per diluted common share. Financial highlights for the
third quarter of 2009 include:
Annuity sales increased 71% to $980 million compared to third quarter
2008 annuity sales of $572 million.
Effective July 1, 2009 American Equity increased its capacity for
sales growth by entering into reinsurance arrangements with Athene
Life Re, a newly formed Bermuda life reinsurer, covering 20% of 2009
premium from two top selling fixed index annuities and 80% of premium
beginning in the third quarter of 2009 from a multi-year rate
guaranteed annuity.
American Equity announced an "at the market" offering ("ATM") of up to
$50 million of its common stock to increase its financial flexibility.
Book value per outstanding common share increased to $13.03 including
Accumulated Other Comprehensive Income, up from $9.46 at December 31,
2008.
The net loss for the third quarter of 2009 was $3.0 million, or $0.04
per diluted common share, compared to adjusted net loss of $11.7 million
or $0.21 per diluted common share for the same period in 2008. The net
loss for the third quarters of 2009 and 2008 included $11.5 million and
$39.2 million, respectively of realized losses on investments due
principally to "other than temporary impairments", net of realized gains
and offsets for taxes and adjustments to the amortization of deferred
acquisition costs and deferred sales inducements. These 2009 and 2008
quarters were also impacted by the effects of fair value changes in
derivatives and embedded derivatives which increased the third quarter
2009 net loss by $19.7 million and decreased the adjusted third quarter
2008 net loss by $5.2 million.
RECORD OPERATING EARNINGS FROM CONTINUED STRONG INVESTMENT SPREADS
Record operating income for the third quarter of 2009 was driven
primarily by an increase in the yield on average invested assets to
6.38% and a reduction in the cost of money for the quarter to 3.25% for
a gross spread of 3.13%. Total investment income of $241.5 million
included nonrecurring fee income on bonds of $2.4 million. Excluding
nonrecurring fee income the investment yield an average invested assets
for the third quarter of 2009 was 6.31%. The average yield on $1.3
billion of fixed income securities purchased in the third quarter of
2009 was 6.28% and $46.7 million of commercial mortgage loans were made
during the quarter at an average yield of 7.02%.
The cost of money on average annuity liabilities declined to 3.25% for
the third quarter of 2009, primarily as a result of a reduction in the
aggregate cost of one year call options purchased to fund index credits
on index annuity reserves and increased allocations by index annuity
policyholders to the fixed rate crediting strategy. Because new money
yields declined in the third quarter with narrowing of corporate credit
spreads, American Equity has announced rate reductions on new annuities
sold after November 3, 2009.
Impairment losses on invested assets of $50.1 million were recognized in
the third quarter of 2009 and represent 0.3% of the carrying value of
total invested assets at September 30, 2009. These losses include: $26.1
million from residential mortgage backed securities ("RMBS"); $18.5
million from corporate securities; and $5.5 million from commercial
mortgage loans. While substantially all of the company's RMBS are
continuing to perform in accordance with their terms, rating agency
downgrades due to projected losses on a portion of these assets
necessitated impairment loss recognition.
CAPITAL MANAGEMENT
In response to the strong sales environment of 2009, American Equity has
implemented a variety of programs to support statutory capital and
surplus at the levels required to maintain its "Aâ" (Excellent) rating
as assigned by A.M. Best Company. During the first three quarters of
2009 these included: (i) drawing down the remaining $75 million from the
company's bank line of credit for contribution to the capital of the
company's primary operating subsidiary; (ii) restructuring commission
payments to sales agents to defer 25% over 2 years after the date of
sale; (iii) expanding a reinsurance treaty providing surplus relief of
$29.5 million pre-tax in connection with reserves held for annuity
withdrawal benefits. Also, in the third quarter of 2009, American Equity
ceded $513.8 million of annuity premium to Athene Life Re under funds
withheld reinsurance arrangements, including $23.4 million or 20% of
multi-year rate guaranteed premium received in the third quarter of 2009
and $490.4 million or 80% of certain index annuity premium received in
the first nine months of 2009. In addition, in connection with its ATM,
the company issued 132,300 shares of its common stock during the third
quarter of 2009 in exchange for gross proceeds of $1.1 million or an
average price per share of $8.26.
To address additional capital requirements for RMBS resulting from
downgrades in that sector the company is also pursuing a "Re-Remic"
transaction involving a block of its Alt-A and Prime RMBS. Such a
transaction would result in a re-alignment of ratings to better reflect
anticipated cash flows from such securities and would enhance their
liquidity. While the statutory accounting treatment for such
transactions has yet to be clarified, the company believes the
transaction will be beneficial under any of the possible accounting
outcomes. American Equity remains committed to taking such steps as are
prudent and cost effective to achieve an acceptable level of capital
adequacy for its financial strength ratings.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to future operations, strategies,
financial results or other developments, and are subject to assumptions,
risks and uncertainties. Statements such as "guidance," "expect,"
"anticipate," "believe," "goal," "objective," "target," "may," "should,"
"estimate," "projects," or similar words as well as specific projections
of future results qualify as forward-looking statements. Factors that
may cause our actual results to differ materially from those
contemplated by these forward looking statements can be found in the
Company's Form 10-K filed with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date the statement was
made and the company undertakes no obligation to update such
forward-looking statements. There can be no assurance that other factors
not currently anticipated by the company will not materially and
adversely affect our results of operations. Investors are cautioned not
to place undue reliance on any forward-looking statements made by us or
on our behalf.
CONFERENCE CALL
American Equity will hold a conference call to discuss third quarter
2009 earnings on Thursday November 5, 2009, at 10:00 a.m. CST. The
conference call will be webcast live on the Internet. Investors and
interested parties who wish to listen to the call on the Internet may do
so at www.american-equity.com.
The call may also be accessed by telephone at 866-831-6162, passcode
80891304 (international callers, please dial 617-213-8852). An audio
replay will be available shortly after the call on AEL's web site. An
audio replay will also be available via telephone through November 26,
2009 by calling 888-286-8010, passcode 17772836 (international callers
will need to dial 617-801-6888).
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its
wholly-owned operating subsidiaries, is a full service underwriter of
fixed annuity and life insurance products, with a primary emphasis on
the sale of index and fixed rate annuities. The company's headquarters
are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The
mailing address of the company is: P.O. Box 71216, Des Moines, Iowa
50325.
1 In addition to net income (loss), American Equity has
consistently utilized operating income, a non-GAAP financial measure
commonly used in the life insurance industry, as an economic measure to
evaluate its financial performance. See accompanying tables for the
reconciliation of net income (loss) to operating income and a
description of reconciling items.
2 All prior period financial statements have been adjusted
due to a change in accounting for convertible debt which was effective
for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. See
more complete discussion in the company's Form 10-Q for the quarterly
period ended March 31, 2009.
American Equity Investment Life Holding Company
Net Income (Loss)/Operating Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(As Adjusted) (As Adjusted)
(Dollars in thousands, except per share data)
Revenues:
Traditional life and accident and health insurance premiums $ 3,166 $ 3,223 $ 9,519 $ 9,419
Annuity product charges 15,835 13,328 47,501 37,271
Net investment income 241,471 209,978 688,928 607,546
Change in fair value of derivatives 121,507 (83,753 ) 108,178 (314,431 )
Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses 5,510 2,258 10,587 3,343
OTTI losses on investments:
Total OTTI losses (94,216 ) (61,232 ) (171,668 ) (94,755 )
Portion of OTTI losses recognized in other comprehensive income 49,641 - 108,012 -
Net OTTI losses recognized in operations (44,575 ) (61,232 ) (63,656 ) (94,755 )
Gain (loss) on extinguishment of debt - (28 ) 3,098 (1,356 )
Total revenues 342,914 83,774 804,155 247,037
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 2,737 2,126 6,910 7,056
Interest sensitive and index product benefits 75,288 50,387 207,028 154,032
Amortization of deferred sales inducements (8,081 ) 6,760 17,814 34,193
Change in fair value of embedded derivatives 259,737 (37,100 ) 414,636 (237,969 )
Interest expense on notes payable 3,370 5,014 11,288 15,127
Interest expense on subordinated debentures 3,841 4,669 12,078 14,549
Interest expense on amounts due under repurchase agreements 100 2,698 344 7,694
Amortization of deferred policy acquisition costs (2,972 ) 19,285 44,938 118,595
Other operating costs and expenses 13,961 13,549 45,305 38,550
Total benefits and expenses 347,981 67,388 760,341 151,827
Income (loss) before income taxes (5,067 ) 16,386 43,814 95,210
Income tax expense (benefit) (2,089 ) 28,102 11,305 55,214
Net income (loss) (2,978 ) (11,716 ) 32,509 39,996
Net realized gains and net OTTI losses on investments, net of offsets 11,491 39,222 10,954 49,140
Convertible debt retirement, net of income taxes - 16 (1,520 ) 793
Net effect of SFAS 133, net of offsets 19,640 (5,211 ) 31,121 (32,861 )
Operating income (a) $ 28,153 $ 22,311 $ 73,064 $ 57,068
Earnings (loss) per common share $ (0.05 ) $ (0.22 ) $ 0.59 $ 0.74
Earnings (loss) per common share - assuming dilution $ (0.04 ) $ (0.21 ) $ 0.57 $ 0.72
Operating income per common share (a) $ 0.49 $ 0.42 $ 1.32 $ 1.06
Operating income per common share - assuming dilution (a) $ 0.47 $ 0.40 $ 1.27 $ 1.02
Weighted average common shares outstanding (in thousands):
Earnings (loss) per common share 58,030 52,916 55,462 54,075
Earnings (loss) per common share - assuming dilution 60,833 55,835 58,231 56,953
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American Equity Investment Life Holding Company
Operating Income
Three months ended September 30, 2009 (Unaudited)
Adjustments
SFAS 133
Realized and Other Operating
As Reported Losses Index Annuity Income (a)
(Dollars in thousands, except per share data)
Reserves:
Traditional life and accident and health insurance premiums $ 3,166 $ - $ - $ 3,166
Annuity product charges 15,835 - - 15,835
Net investment income 241,471 - - 241,471
Change in fair value of derivatives 121,507 - (178,312 ) (56,805 )
Net realized gains on investments, excluding other than - -
temporary impairment ("OTTI") losses 5,510 (5,510 ) - -
Net OTTI losses recognized in operations (44,575 ) 44,575 - -
Total revenues 342,914 39,065 (178,312 ) 203,667
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 2,737 - - 2,737
Interest sensitive and index product benefits 75,288 - (591 ) 74,697
Amortization of deferred sales inducements (8,081 ) 8,590 19,700 20,209
Change in fair value of embedded derivatives 259,737 - (259,737 ) -
Interest expense on notes payable 3,370 - - 3,370
Interest expense on subordinated debentures 3,841 - - 3,841
Interest expense on amounts due under repurchase agreements 100 - - 100
Amortization of deferred policy acquisition costs (2,972 ) 12,673 31,771 41,472
Other operating costs and expenses 13,961 - - 13,961
Total benefits and expenses 347,981 21,263 (208,857 ) 160,387
Income (loss) before income taxes (5,067 ) 17,802 30,545 43,280
Income tax expense (benefit) (2,089 ) 6,311 10,905 15,127
Net income (loss) $ (2,978 ) $ 11,491 $ 19,640 $ 28,153
Earnings (loss) per common share $ (0.05 ) $ 0.49
Earnings (loss) per common share - assuming dilution $ (0.04 ) $ 0.47
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(a) In addition to net income (loss), we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations and related deferred tax asset valuation allowance, SFAS 133, dealing with fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor's understanding of our underlying results and profitability.
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